It's about time somebody told the truth about this charade. READ THIS!

The nation's economists, including those at the BLS, Fed, and BEA, have been distorting the state of the nation's economic health, skewing it upward. Anybody who reads this blog or lives in the real world already knew that.

With this story, The Times has opened the door to a whole bunch of truth. This story only addresses one way that statistics are mangled to make things look better than they are. Essentially, imports are counted as value addition to the American economy.

... An accounting firm in New York with 50 employees outsources some of its functions to less expensive accountants in India: the paperwork on an income tax return, for example. That work comes back to New York by computer transmission and is billed at New York rates, as if it were value added in this country.

So Company X pays Accounting Firm Y for services that were actually performed by Indian Accountant Z. The actual value was added in India but it is counted in American GDP figures.

Accounting Firm Y is the big winner in this scenario. They essentially steal the value of Indian Accountant Z's work. Company X is hosed over, overpaying for Accounting Firm Y's services, which are actually performed in India. Since it looks like Accounting Firm Y did the work and since Accounting Firm Y got paid for the work, it counts as GDP growth. It is GDP growth -- Indian GDP growth. Nothing is added to the American economy, though, and a little something is taken away.

The same dynamic happens with imported goods. You buy sunglasses at MalWart for $8. Some Chinese company sold them to MalWart for $2. MalWart records a gross profit on the deal of $6. It looks like GDP growth in the statistics, but it's really just labor arbitrage.

This is what I have been saying for years: Wealth is only created through work.

Chinese workers are doing the work that creates American wealth. The problem is that when American workers can't find jobs, we don't create wealth. The wealth created by Chinese workers is siphoned off by those who broker the deals on the products of their labor. This is why the rich keep getting richer and you can't find a job.

Here is the problem with this way of doing things: It is entropic.

Who buys things in the American economy? Why, the American consumer, of course!

If the American consumer can't find a job, she can't buy anything. If nothing is being produced in America, the American consumer can't find a job. Sure, in the short term it is very profitable for those who swing the deals, but over time they cannibalize the base of their own business -- the consumer.

Those $8 sunglasses at MalWart are counted as a $6 gain for the American economy when, in fact, they represent a $2 loss.

I'm not against trade, mind you, not at all. I love mangoes and coffee, but those things don't grow too well in my neck of the woods. I have nothing against Chinese and Indian workers. In fact, I support them. It would be great if there were some sort of global minimum wage so that true efficiency would be rewarded in trade, not labor arbitrage. In other words, if Chinese workers got paid $10 an hour to make things and so did American workers, Chinese workers would make the things that they make more efficiently and American workers would make the things that we make more efficiently. The trade balance would be even, and everybody would be richer...

... OK, not everyone would be richer. The people who take the profits on the deals now would be slightly less rich in the short term, but in the longer term it would even be better for them. You won't be selling too many $8 sunglasses if nobody has a job. If everybody has a job, you'll sell a lot more $15 sunglasses.

It is great that The Times finally brought this issue to the fore. It's one that I have been thinking about since at least 1999 when the WTO protests happened in Seattle.

Now if only they would address some of the other distortions in economic statistics, like the unemployment rate and -- most importantly -- the gross inequity in the distribution of wealth and disappearance of the middle class.